CMO vs CDO trading desk
Have CMO trading desks been hit like CDO trading desks?
Given the CDO's protect against defaults, and the housing crisis was due to the large number of defaults CDO's tanked.
CMOs on the other hand protect against pre-payments of which not much was happening since many were defaulting. I would imagine now is a great time for a CMO desk as people are refinancing and prepaying since interest rates are so low.
Any thoughts?
No, CMOs have have not been hit. Non agency CMO's got hit but there are a lot of re-remics and it should be picking up soon. Agency CMOs is doing just fine.
Also, you need to serious read up on mortgages because your statements are just off. CMOs are strucutured to provide a different maturity bond for the client (no bank wants a 30yr MBS, but they would like a 3yr bond). Defaults on Agency CMOs act like Prepayments (why do you think FNMA and Freddie are in such deep shit) You also touched on the issue with the negative convexity of mortgages--interest rates being low and more refinancing. If rates drop, you are getting paid back at par for a premium priced bond.
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